Indian equities held steady on Wednesday amid escalating tensions between India and Pakistan. Gift Nifty fell sharply after India’s Operation Sindoor’s joint missile strikes on 9 terror targets in Pakistan and Pakistan-occupied Kashmir, but recovered quickly as markets assessed the action as focused and non-escalatory. The Sensex rose 0.13 per cent or 105 points to end at 80,746 on Wednesday, while the Nifty settled 0.14 per cent higher at 24,414. The Indian rupee, however, continued its downward journey for the second consecutive day, depreciating by 40 paise against the dollar to close at 84.83, weighed down by the escalating cross-border tensions. Progress on the India-UK Free Trade Agreement (FTA) buoyed investor optimism, driving gains in textiles, automobiles and information technology shares. Sentiment was also boosted by the US and China signalling a willingness to resume trade talks. Nifty Auto, Consumer Durables, and Realty were major gainers, while Nifty FMCG, Healthcare, and Pharma ended in the red. “Short-term market swings during geopolitical events are unsettling, but history shows that they rarely derail India’s long-term growth story. In the long term, the macro-economic factors and corporate earnings drive the stock market performance,” said a note by Kotak Mutual Fund. Inflation and fiscal deficit Government action suggests there is low possibility of a war, it said. India has seen 4 major wars and the last major conflict (Kargil-1999) saw the equity markets remaining robust after an initial panic. “It is difficult to predict the market direction but the last major conflict triggered temporary drawdowns before markets rebounded. Staying invested and avoiding knee-jerk decisions may be prudent for long-term wealth creation. In the past conflicts, while there has been limited impact on growth, we have seen an increase in inflation and fiscal deficit,” the note said. “The recent military strikes involving India have understandably raised investor concerns about geopolitical stability in the region. Historically, Indian stock markets tend to react sharply in the short term to such events due to heightened uncertainty and risk-off sentiment. However, past patterns also show that markets often recover swiftly once clarity emerges and broader macroeconomic fundamentals remain intact,” said Anirudh Garg, Partner & Fund Manager at Invasset PMS. He added that while sectors like defence and oil & gas may see temporary movements, long-term investor focus generally remains aligned with earnings, policy continuity, and economic growth trajectories. According to Ram Medury, Founder and CEO at Maxiom Wealth, market sentiment remains stable but if Pakistan’s response escalates significantly, especially beyond symbolic retaliation, foreign institutional investors (FII) could turn cautious, particularly given the rupee’s recent appreciation and global risk aversion. However, if Pakistan’s reaction is limited to face-saving measures, markets are unlikely to see a significant correction. “Investors should remain cautious and not indulge in speculative actions,” he said. Published on May 7, 2025